Articles

Marketing / Don't Sell Yourself Short!

"Why do I always under-price" asked Linda at a business networking meeting. She heads a translation company.

"Pricing and costing is such an issue for me," she said. " I find it hard to charge a premium price yet I know that my work is first class – somehow there's a block in me to charging those top rates that my competitors charge".

Why Women Undercharge

The prices we charge in business often reflect the way we value ourselves. Our prices are often a measure of our own self esteem and self worth. Pricing is fundamentally a measure of your confidence as a business owner. It is the only validation of the worth you provide to your market.

There is a tendency for women to undercharge for services and products they sell.  Is the underlying thinking, "if I under-price I am more likely to sell?" Is it a lack of knowledge and understanding in how to cost and set a realistic price? Is it a fear of being assertive as regards the prices we charge. Or is it a lack of confidence and sometimes feeling under qualified or undereducated in business?

Nancy runs an event planning business, she under quoted for a large event, as she really wanted the business. Nancy didn't do her sums correctly and the event actually saw her out of pocket.  Her argument was that it's better to be working than not. This approach cannot last long.

In the services sector, women professionals tend to charge less than men for the same work. Women also tend to focus on the relationships with their clients. They are often more flexible on price and charge needier clients less than those in a better position to pay.

Men tend to set prices regardless of the circumstances of the client. As women are often socialized to please others, they also project this to pricing and think in terms of pleasing the customer rather than thinking in terms of worth of the service or product in the eyes of the customer. While customer-focused orientation is critical in a business it cannot be at the price of your businesses survival.

Build in healthy profits from the start

It is critical to build in a healthy profit from the start. You have to add a reasonable profit to survive in business. If you can't price your products high enough, you've either got to grow in confidence, change your products or services range so you are providing that value, or get out of the business, as you will not survive.

Nurit, a landscape gardener, always took it personally when people asked for a price break, and felt nervous about losing the business if she stood her ground.  It's best not to compete on price: there is always someone who will charge less. The best protection for your business is to build in unique value and compete on that value.

Pricing Basics

It's critical to get sound advice on how to price and cost your operation. There are many methods for pricing for service businesses, retail operations and manufacturers. Basically costs determine our lowest price.

Costs must include fixed costs, overheads as well as variable costs which include marketing costs, cost of materials and PR – there are always indirect costs that are often overlooked – communications and  transport. Demand, perceived value and competition determine our highest price.

Demand and Value - Often these key elements are not taken into account when prices are set. Ask yourself;

• What special benefits do customers get by buying my product or service?
• What are these benefits likely to be worth to them?

Competition – Most small businesses operate in niche markets, where the key value should not be price. Remember unique value is the best protection  from competition. 

Long Term Strategy - Pricing is part of your company image, price reflects where the company positions itself in the market place. Your pricing and company image need to be consistent. You can't sell up-market hand bags at very low prices, or position your self as an expert in the health services and under-price.

Three Principal Ways to Price;

1. Mark Up Pricing or Cost plus

Here you take all your costs into account and you decide on what profit margin or percentage you want. You then add this on top of your costs and that is the price you charge whether it is wholesale or retail.

Mark-up pricing is too commonly used as it is easier to think of the arithmetical side of pricing rather than to think in terms of the value you are bring to customers. It is a common mistake to be too cost-oriented in pricing.

Judy who produces jewelry says "the crystals and fittings I use cost so little, how can I charge  more than 20 shekels for a pair of earrings". Judy forgets that she is also selling her sense of style and fashion and the hope that the wearer will be more attractive. The earrings are worth much more than the cost of the parts.

1. Value Pricing

Remember to sell on value rather than on price. If you are producing a unique product or service, you can afford to think of the value you are bringing to the customer or client, and the value they see in the product. While value is hard to determine this is the best direction to go in. People pay for speed, for services that are obtained at not regular hours and service in general.

1. Going Rate Pricing

Pricing based mainly on competitors' prices. Method used where there is a low perceived differentiation between competing services

It is easy to fall into this trap "if everyone is charging this price how can I be different". The real question is how to offer or package service in a different way so customers and clients do perceive a real differentiation and there is therefore more allowance for price elasticity and greater perceived value.

Some Common Mistakes with Prices

• Pricing is too cost oriented
• Pricing is not reviewed often enough
• Pricing is not considered as an intrinsic part of the marketing strategy
• Prices are not varied enough for different products and services and market segments

Summary

It is important not to undervalue your products or services and most importantly yourself. Do analyze your costs critically and think of the values you are bringing to customers then consider your pricing options. The goal is to find the right price, meaning a price that (1) reflects the true market value of whatever you're providing, (2) allows you to earn enough gross profit to build and maintain a healthy business, and (3) doesn't leave you vulnerable to competitors (4) a price that you feel comfortable with.

Barbara Shaw

Marketing Consultant